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Sudan and South Sudan: New Era, New Opportunities, a commentary by Masood Ahmed, Director, Middle East and Central Asia Department, IMF

July 23, 2011

A Commentary by Masood Ahmed, Director, Middle East and Central Asia Department, International Monetary Fund

Published in Asharq Al Awsat, July 23, 2011

On July 9, after decades of civil war, South Sudan became an independent state, having officially seceded from Sudan. A number of issues, most notably surrounding borders, oil revenue-sharing, and currencies, have yet to be resolved. But the participation of Sudan’s president, side-by-side with his Southern counterpart at the new nation’s inauguration, is an encouraging indication of positive prospects for good cooperation and, ultimately, sustainable peace between the two countries.

For both nations, new challenges and new opportunities lie ahead.

Sudan enters a new era of economic development. While a marked increase in the country’s oil production over the past decade has lifted growth rates, raised living standards, and brought in much-needed revenues, it has had only limited positive spillovers onto Sudan’s non-oil sector, with the result that far too many Sudanese are still afflicted by wrenching poverty.

As Sudan’s revenues from oil production in the south are poised for a steep decline, it is now more important than ever to transform the economy from an oil-dependent one to one that is more diversified. The development of agriculture and light industries holds considerable potential for growth over the medium and long-term. Greater focus on agriculture in particular, with actions aimed at broadening opportunities for local farmers and increasing agricultural productivity, such as credit incentives and upgraded irrigation infrastructure, could help the country achieve self-sufficiency, raise average income, and improve trade prospects. Development of the service sector is another promising avenue of diversification. Extractive industries outside of oil could play a role too, as evidenced by increasingly important gold mining activities. In all cases, the role of the private sector in the reformulation of the country’s economy will be critical.

A healthy macroeconomic picture, with low inflation and well-functioning foreign exchange markets, would support the needed investment, growth, and poverty reduction. Equally important will be putting in place a poverty reduction strategy elaborated through a fully participatory process that involves government institutions, civil society, and development partners.

Sudan’s external debt, about $40 billion, is far too high, and the country has been in arrears to many international creditors for many years, sharply curtailing the country’s access to external financing. Normalization of Sudan’s financial relations with the major multilateral institutions and donor countries could pave the way for both new flows of financial resources and for comprehensive debt relief. Access to critical development finance will contribute to better lives for millions of Sudanese, and help consolidate the political and economic viability of both Sudan and South Sudan.

South Sudan still shows the signs of a long civil war and, despite its oil wealth, ranks among the least developed countries in the world. On almost all Millennium Development Goal indicators, the country scores lower than Sudan and the average for sub-Saharan Africa—in some instances by a large margin. About half of the country’s children enroll in primary school, yet only 10 percent complete it. Infrastructure is alarmingly poor: paved roads cover just about 100 kilometers in a country close to the size of France, no airports meet international civil aviation standards, and river channels have not yet been made navigable.

South Sudan is at an early stage of economic development, but has great potential. Revenue from oil provides an opportunity to invest in social and infrastructure development, but some also needs to be set aside for the future, given that production is already starting to decline. And sizeable livestock, fishery, and forestry resources and adequate rainfall and fertile land make agriculture a promising potential driver of non-oil growth. Making the most of these assets to generate sustained and inclusive growth calls for transparent and effective budget processes, a robust legal framework, and strengthened financial sector. Expertise from abroad would help in this regard—also to build much-needed capacity to put into operation basic government institutions, including a central bank to introduce and manage a new currency.

For both Sudan and South Sudan, future prosperity—which will help to cement peace—will depend to a large part on increased economic cooperation and trade between the two countries. The IMF looks forward to working with the two states to address their social, economic, and financial challenges to enable them to fully exploit their economic potential in support of inclusive growth for the benefit of the Sudanese and South Sudanese people.